Gold and Silver Outlook for August 1-5

The bullion market kept recovering as the FOMC and BOJ didn’t change their policies. And the disappointing GDP report for the U.S. – only 1.2% growth vs. 2.6% exp. – was enough to drive further up gold and silver prices. But this week the BOE and the NFP could bring bullion’s rally to a halt. Let’s examine what’s up ahead for gold and silver for the week of August 1-5:

So no surprise, yet again, from the FOMC as there were no changes or even hints from the FOMC that it plans to raise rates anytime soon. The main difference in the recent statement was that there was one dissenter voted for a rate hike this time and the statement was a bit more bullish on the market. Despite this news the GDP report, in which the U.S. economy grew by only 1.2% in Q2 – lower than expected – was enough to bring back down the market outlook of the Fed’s cash rate; by the end of last week, the implied probability of a rate hike in September declined to 12%; and for December the odds of a hike have also fallen to 33%.

rate implied Aug 1 2016

Source: CME Group

This reaction was also echoed in the bullion market as both gold and silver kept rising following the FOMC meeting, as indicated in the table below.

fomc statment gold and silver July

Source: FOMC and Bloomberg

And now FOMC officials pointed out at the beginning of this week that a rate hike is still a viable possibility this year – something the markets are basically ruling out, especially after the disappointing GDP report.

Moreover, the BOJ’s decision not to introduce any additional stimulus such as augmenting its QE or slashing again its cash rate has also provided some more backwind for gold and silver prices. This also means that this week’s MPC policy meeting could also shake up the forex markets – and thus indirectly affecting precious metals prices. Currently, the market expects a 25 basis point rate cut; any more stimulus – e.g. a 50 basis rate cut or an increase to the asset purchase program – could lead to a weaker GBP and Euro – which could also translate to downward pressure on gold and silver. But a hawkish statement with no rate cut – which is also a viable possibility – may lead to a recovery in the GBP; a shift that could also pull back up gold and silver.

But the main event of the week for bullion is likely to remain in the U.S. – the NFP for July. For now, the market expects a gain of 180K; a lower figure from last month but still good enough for the FOMC to reconsider raising rates this year or at the very least raise the chances of a hike. Therefore, if the report comes out better than expected – not only on the headline figure but also on wage growth, which wasn’t too impressive last time – this report could bring back down gold and silver by the end of the week. Before the release of the NFP on Friday, the non-manufacturing PMI, factory orders, ADP estimate, jobless claims and core PCE will lead up the way and revise market expectations. If these report present better than expected numbers, this could shift market sentiment to risk-on mode, which isn’t likely to help bullion prices.

ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) declined by 0.52%, week on week, to 958.1 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) rose by 0.3% to 349.72 million ounces.

Bottom line

The bullion market is likely to keep gaining momentum throughout the week, but this rally could come to halt by the end of the week if one of the following come about: The BOE surprise the market and provide more stimulus than expected; and if the NFP report and the reports leading up to this monthly update come out strong and beat expectations, gold and silver could change course and come back down.

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